Business leaders have rounded on the Government's decision to increase the minimum wage by 30p to £5.35 an hour.

The changes, which will be introduced in October, will see the rate for 18 to 21 year olds rise by 20p to £4.45, while workers aged 16 and 17 will see their minimum rate increased by 30p to £3.30 an hour.

The 30p-an-hour increase in the minimum wage is worth 5.9 per cent, which is higher than the increase in average earnings, currently running at around four per cent.

The hourly rate of the minimum wage was set at £3.60 when it was first introduced in April 1999 and has increased every year since then.

Sir Digby Jones, director general of the CBI, said the minimum wage had now increased by 12 per cent between 2003 and 2005 - "far in excess" of average earnings growth.

He added: "More and more companies are finding it difficult to absorb the rises so another six per cent will be the last thing they need."

Birmingham Chamber of Commerce and Industry said the rise would have an adverse effect on employment in the West Midlands, at a time when manufacturing was in recession.

"Businesses we talk to are increasingly worried about the year-on-year increases to the minimum wage - a major barrier to improving Birmingham's business environment along with employment regulation. The Government must look at the impact the rise is having on business productivity and competitiveness.

"It will simply add costs to an already over-stretched sector. This additional outlay will further damage its ability to compete and will not improve the situation in disadvantaged areas in cities in the region.

"There is little doubt that the decision will have a damaging impact on many sectors of business, especially manufacturing."

Trade and Industry Secretary Alan Johnson said 1.3 million workers would benefit from the rise.

Mr Johnson said the Government had accepted the recommended increases, made by the Low Pay Commission, because of the strong state of the economy and the "unprecedented" high level of employment which had seen an extra 2.4 million jobs created since Labour came to power in 1997.

Brendan Barber, general secretary of the TUC, said: "The minimum wage has been successfully increased without causing any detrimental side effects on the economy or jobs.

"Given this record it would be foolish for anyone to pretend that employers cannot afford an extra 30p an hour for our lowest paid workers."

Tony Woodley, general secretary of the Transport and General Workers Union, said: "In spite of our concerns that this is still too near a poverty wage, the employers' view that a national minimum wage would dramatically increase unemployment has been proved to be palpably wrong."